Contrary to what non-banking finance companies (NBFCs) have been saying, the removal of the ‘priority sector' tag on bank loans given to NBFCs will actually help the end borrower, say, a small, commercial vehicle buyer to access loans cheaper.
Speaking to Business Line today, Dr K.C. Chakrabarty, Deputy Governor, Reserve Bank of India, said RBI had data to prove this and was “open to a debate” with anyone on the same.
Banks have to lend to some specified sectors to meet the Government's social objectives. Banks that could not lend directly to these ‘priority sectors' would simply lend to NBFCs who would use the money to give loans to these sectors. Thus, banks met their ‘priority sector' obligation.
However, the RBI in May ruled that loans given by banks to NBFCs would no longer count towards meeting their priority sector obligation. The idea was to force banks to lend directly to those sectors, rather than indirectly through NBFCs.
This made loans costlier to NBFCs, who bemoaned that their on-lending would consequently be at higher rates, and the end user would have to pay more — which goes against the grain of ‘inclusive growth'.
This is what Dr Chakrabarty refuted today. The Deputy Governor was here in connection with a RBI board meeting.